The prevailing narrative in infrastructure favours scale. Large funds, large assets, and large ambitions dominate the conversation. Yet, as Europe's energy transition continues and policy reforms reshape the investment landscape, it's increasingly clear that meaningful progress is being driven by the small- and mid-cap segments. Transactions below €500 million account for the majority of European infrastructure deals. This is the centre of gravity for new investment and innovation.   

Our experience over more than a decade - with around €3 billion invested across energy, transport and digital infrastructure - consistently points to the same conclusion. The lower mid-market is where policy ambition, operational delivery and investor returns align most effectively. There's less need for intermediaries, and it's materially less competitive. This gives space for genuine value creation, rather than simply financial engineering.

This is not a question of taking more risk: it's about operating closer to the assets, closer to local stakeholders and closer to the decisions that determine whether Europe's economic and decarbonisation objectives are delivered in practice.

Policy tailwinds and competitive advantage

Recent reforms in the EU's market design for electricity, quicker permit approvals, and the Net-Zero Industry Act have shifted the balance in favour of assets that can adapt quickly and align with local policy priorities. Small- and mid-cap platforms have a structural advantage. In practice, this means utilities that work constructively with municipalities, transport assets embedded within national and regional strategies, and energy platforms that can adapt business models as subsidy regimes and security-of-supply priorities evolve. Large, centralised assets often struggle to respond at this pace.

The Draghi competitiveness report and the ongoing debate about Europe's cost of capital highlight the importance of bilateral, primary deals that avoid auction-driven premia and that can deliver better-timed execution. This matters in an environment where value is increasingly created through operational decisions rather than multiple expansion.

Risk, value and evidence

The notion that smaller assets are riskier doesn't stand up to scrutiny. In regulated sectors, risk is defined far more by framework stability and governance quality than by asset size. Our utility investments in Finland, for example, operate under the same regulatory regimes as larger peers, yet benefit from more conservative capital structures and greater scope for hands-on asset management.

This difference in governance and capital discipline translates into outcomes. And the results are measurable through financial key performance indicators that capture both short-term returns and long-term sustainability-driven resilience. In 2024, our energy assets generated nearly 900 GWh [1] of renewable electricity, avoiding 274,000 tonnes of CO₂e [2]. In the same year, our district heating platforms delivered 1.4 TWh [3] of reliable, low-carbon heat to over 88,000 customers; our electricity distribution assets supported security of supply through a harsh Nordic winter; and our trains were among the most reliable on the UK network.

Agility, local solutions and systemic change

Small- and mid-cap assets move at a different pace. Development timelines are shorter, adaptation is faster, and innovation is less encumbered by bureaucracy. In Finland, this has enabled the rapid deployment of electric boilers to exploit periods of low-cost renewable power, the co-location of data centres to capture waste heat, and the diversification of fuel sources within district heating networks to improve resilience. These initiatives were delivered through close engagement with management teams and local authorities, and implemented within months rather than years.

In Italy, a similar logic underpins the development of biomethane platforms, which are focused on upgrading existing biogas assets rather than pursuing greenfield development. This approach leverages existing infrastructure, shortens delivery timelines, and aligns decarbonisation objectives with energy security and local agricultural systems.

European energy policy is rightly ambitious, but the practical work of decarbonisation and resilience is local. Electrifying transport, decarbonising heat, and building digital infrastructure are challenges that play out in villages, towns and municipalities. Small- and mid-cap investors are embedded in these contexts. By working directly with management teams, local authorities and communities, we can deliver solutions that are tailored, rapid and enduring.

This strategy prioritises essential services, high barriers to entry and predictable cash flows, while preserving the ability to actively influence outcomes through majority or co-control positions and long-term partnerships. It also shapes exit options. Assets that have grown and de-risked within the lower mid-market naturally transition into a broader buyer universe over time. This includes larger infrastructure funds, strategic buyers and long-term holders. Liquidity is enhanced rather than constrained.

Final thoughts...

The infrastructure required to support Europe's changing economy won't be delivered solely by megaprojects or flagship assets. It will be built incrementally, through thousands of local decisions across infrastructure systems. It will also be shaped by those who can combine agility, results, and local insight to deliver measurable outcomes - especially as policy and competitiveness trends continue to evolve.

Small- and mid-cap investors operate at the interface between policy ambition and practical delivery. As such, they're uniquely positioned to support European competitiveness and decarbonisation.  

2025 Wrap-up and 2026 Outlook

2025 closed as another strong year for the European and Australian ABS markets despite intermittent macro uncertainty. Investors continued to demonstrate robust demand, supporting spread compression amid record issuance volumes. For 2026, we expect elevated funding needs and stable performance across core collateral types, alongside ongoing innovation in new and esoteric asset classes. Regulatory changes in Europe may further encourage issuance and broaden the investor base. Overall, floating rate securitised assets remain a compelling component of diversified fixed income portfolios, continuing to offer an attractive spread pick up to similarly rated corporates, floating rate protection, and structural resilience.

Issuance and Market Technicals

As we mentioned in our European and Australian ABS 2025 Q3 update, a strong start to 2025 was halted when broader markets faced uncertainty in early April given President Trump's tariff announcements. The ABS markets recovered relatively quickly and despite continued macro and tariff related uncertainty, demand across the capital structure continued to be strong, leading to spread compression across global ABS markets.

Sustained investor demand and relatively attractive funding levels continued to keep the asset class attractive for issuers for both funding as well as for credit risk transfer.

So...another record-breaking year for issuance? Indeed, although slightly less dramatic than in 2024. European ABS issuance closed the year just over €95bn and Australia continued momentum with another year of strong issuance for the market at just under  €41bn, the second highest year of issuance, and a little short of the record set in 2024 of €46.5, according to JPM research figures.

The supply we have seen in Europe and Australia over the last couple of years has led to an outstanding market size of just under €700bn publicly available/distributed bonds excluding CLOs. This underlines ABS as a significant sector within fixed income markets. Similarly, since the GFC, the Australian securitisation market has demonstrated steady, consistent growth, but the recent acceleration signals robust investor appetite combined with increased supply from a growing non-bank issuer base. In addition, JPM research notes that both the European and Australian markets finished the year with not just record issuance but also positive net supply: net distributed European and Australian ABS issuance reach +€19.3bn and +€6.4bn, respectively, for FY 2025.

A healthy securitisation market is one where innovation and new asset classes emerge, and 2025 did not disappoint. Europe has continued to see stable issuance from traditional mortgage and consumer collateral sectors but there was also a significant number of new deals and issuers which debuted in the market, giving investors a good source of diversity across platforms and collateral types. In Australia, while RMBS continued to dominate supply last year, non-RMBS issuance has grown significantly with sizeable volumes of auto/equipment issuance over recent years and more non-bank lenders in the consumer and SME space adding greater diversity.

Liquidity in the asset class, globally, continued to show resilience, demonstrated by secondary market depth and investor demand even through significant bouts of market volatility such as that seen in April. Some examples of this:

• April secondary volumes totaled €1.9bn in European ABS; more than double the average monthly volume during the year, demonstrating a healthy trading market while new issue markets were less active.
• European ABS (inc. CLO) trading volumes in 2025 significantly increased during 2025 - with a European year end trading desk noting this was up to 30% higher than 2024 - partly due to an increase in supply via auction lists, particularly during the April and October periods of volatility, and increasing volumes across some specific asset classes such as European Auto and Consumer ABS.
• CLO markets continue to demonstrate significant daily liquidity, particularly in the US. Weekly average trading volumes show significant activity, at €1.0bn and €0.3bn in the US and EUR markets respectively, while ETFs in this asset class have grown from €0.3bn to >€40bn over the past 5yrs, mainly focused on US AAA CLO investments.

For 2026, we anticipate the need for funding and reinvestment to continue and issuance to remain elevated. If the current environment persists all signs are pointing to the potential for another record year! We expect strong demand for the asset class to persist and increased origination in traditional consumer underlying assets as well as newer types of collateral to support growth in the asset class. Despite potential macroeconomic volatility, the sector's resilience and the stable investor base make it well placed for the sector to continue.

Asset Performance

Headline fundamentals stayed healthy in 2025 year but were accompanied by a side of tiering - both for consumer as well as levered corporate performance. Capital market volatility, macroeconomic uncertainty and credit stories such as Tricolour emerging in the US kept investors on their toes but structured finance ratings were largely stable through 2025 maintaining a stable to positive ratings drift.

Looking forward, the performance outlook for most collateral types is expected to be stable but we remain mindful of macro and interest rate uncertainty for consumer and corporate borrowers. Despite global central bank rates continuing to reduce from their 2024 peaks during 2025, interest rates are persisting in a higher for longer phase compared to pre-Covid levels, particularly as inflation has remained somewhat "sticky" during 2025. Investors should be focused on limiting risks around macro-led shocks to borrowers by analysing collateral through the interest rate cycle, keeping in mind the key issue of affordability for customers and the importance of strong, effective underwriting by issuers. Unemployment indicators continue to drift upwards and remain front of mind for investors looking for read across into consumer credit performance.

Esoteric and new asset classes were a key theme in 2025

Clearly, securitisation continues to be a key funding tool for traditional consumer and mortgage asset classes, but the past few years have seen exciting developments in new collateral types coming to market. Funding levels in structured finance are attractive for issuers and these new sectors have generally been received well by the market. Additionally, through 2025 we noted a number of new issues in sectors with positive ESG characteristics and considerations. These include solar and heat pump ABS as well as later life mortgages and transactions described as shariah compliant RMBS on the social side. EV auto financing continues to be a growing segment within Auto ABS portfolios.

Risks and Opportunities in 2026:

Macro and geopolitical risks continue:

Writing this just a couple of weeks into 2026, political and geopolitical risks continue to be front-of-mind for market participants. We expect this dynamic to persist this year and for investor sentiment to remain sensitive to developments in geopolitics, global trade policy as well as the path of interest rates in the US and in Europe.

Consumer performance: Structural protection in ABS structures mitigate risks

In Europe, consumers continue to face structural and cyclical risks, being described as financially resilient but behaviorally cautious. However, expectations for unemployment to remain broadly stable maintains a base for low and stable credit card and ABS arrears performance. We do expect tiering to continue between better quality prime collateral and more non prime lenders who support underserved borrowers. Structural protections afford to investors in securitised structures, help mitigate risk, often with increasing protection over time as transactions or assets de-lever.

Housing Market Valuations:

Asset prices, in particular housing, in the UK, Australia and Europe remain on a stable or improving trend given the consistent undersupply seen in construction of housing seen across the major RMBS markets together with continued increase in demand.

Where there has been some slowing in segments of the market, in the UK for example, with London apartment valuations facing pressure, we note that the Buy to Let RMBS performance remains consistent given stable unemployment and rental streams. Any unforeseen shock to unemployment or regulatory impacts are key to performance but, post GFC affordability regulations and appropriate stress testing of borrowers' together with stability in underwriting gives investors comfort beyond the structural features of RMBS.

Amongst and despite the risks above we note some significant opportunities for experienced investors in Global structured finance markets:

New and Esoteric Asset Classes:

As noted above, we have seen issuance beyond traditional platforms over the last couple of years emerging. The use of securitisation as a funding tool beyond "on the run" platforms is valuable to investors. New issuers to the market, including those establish issuers that diversifying their funding via securitisation, and collateral types in Europe and Australia present opportunities to earn a premium over more traditional platforms and provide diversity to portfolios. That said, we should be cognisant of potential additional risks that may need to be considered relating to new lending types as well as the short historical performance available for some types of collateral which is needed to structure, rate and stress transactions appropriately.

European Markets give investors depth, diversity and Liquidity

We continue to see opportunities in the European ABS and CLO markets with an overall size of over €600bn now, the market gives investors good relative value where diversity of jurisdictional collateral risk alongside strong historical performance. This is all within the context of a dedicated investor base and proven liquidity in the asset class.

Regulation, regulation, regulation

Regulation will remain a key consideration in 2026, particularly in Europe, where the European Securitisation legislation aims to reduce barriers to issuance and investment in EU securitisation:

• Capital Requirements Regulation (CRR) updates aim to reduce capital requirements for bank investors.
• Simplified due�'diligence for EU investors in repeat ABS issuers could lower barriers to participation.
• Reporting template reforms may ease private deal reporting burdens.
• Solvency II changes could unlock greater insurer participation.

Collectively, these developments should improve funding conditions and make securitisation more attractive to a broader investor base albeit with a fluid timeline.

Implications of the motor finance commission rulings for UK Auto ABS

The FCA consultation on motor finance broker commissions is still ongoing, but any impact on ABS has been limited and if the redress scheme is as expected, focussed on discretionary commission arrangements, we expect little to no impact on new and outstanding UK auto asset-backed securities (ABS) transactions as a negligible amount of collateral in outstanding securitised bonds would be affected.

Secondary liquidity was more challenged until more clarity was reached. Issuance in UK Auto ABS across bank and non-bank lenders, was €3.6bn in 2024 compared to 2025 where no issuance at all was seen until September, when VW opened the market and priced well with strong demand. As we noted in one of our published articles at the time we expected this to be a positive signal for UK non-bank lenders, giving them confidence in execution. Indeed, Oodle came with a Dowson transaction soon after which was taken well by the market. That said, given lower origination volumes over 2025 for the UK non bank lenders, particularly in the non prime space, funding needs may be more muted in 2026. It is also worth noting, that used car prices fell as supply of cars normalised post covid, residual values have also corrected back down; stabilising for ICE vehicles but falling sharply for EVs, where residual values proved significantly over forecast.

Looking forward to 2026:

The depth and diversity of the European and Australian markets continue to support the role of global securitised products as a strategic allocation within fixed income portfolio; enabling diversification across jurisdictions, collateral types and issuer profiles while maintaining liquidity.

Looking forward, regulatory developments, continued innovation in collateral and an expanding issuer base should reinforce market depth and opportunity, making securitised credit not merely a tactical allocation but a durable, scalable and resilient cornerstone of fixed income portfolios in 2026 and well beyond.